Lords of Finance: The Bankers Who Broke the World (Hardcover)
by Liaquat Ahamed
In December 1930, the great economist Maynard Keynes published an article in which he described the world as living in ¡°the shadows of one of the greatest economic catastrophes in modern history.¡± The world was then 18 months into what would become the Great Depression. The stock market was down about 60%, profits had fallen in half and unemployed had climbed from 4% to about 10%.
If you take our present situation, 16 months into the current recession, we're about at the same place. The stock market is down 50 to 60 percent, profits are down 50 percent, unemployment is up from 4.5% to over 8%.
Over the next 18 months between January 1930 and July 1932 the bottom fell out of the world economy. It did so because the authorities applied the wrong medicine to what was a very sick economy. They let the banking system go under, they tried to cut the budget deficit by curbing government expenditure and raising taxes, they refused to assist the European banking system, and they even raised interest rates. It was no wonder the global economy crumbled.
Luckily with the benefit of those lessons, we now know what not to do. This time the authorities are applying the right medicine: they have cut interest rates to zero and are keeping them there, they have saved the banking system from collapse and they have introduced the largest stimulus package in history.
And yet I cannot help worrying that the world economy may yet spiral downwards. There are two areas in particular that keep me up at night.
The first is the U.S. banking system. Back in the fall, the authorities managed to prevent a financial meltdown. People are not pulling money out of banks anymore¡ªin fact, they are putting money in. The problem is that as a consequence of past bad loans, the banking system has lost a good part of its capital. There is no way that the economy can recover unless the banking system is recapitalized. While there are many technical issues about the best way to do this, most experts agree that it will not be done without a massive injection of public money, possibly as much as $1 trillion from you and me, the taxpayer.
At the moment tax payers are so furious at the irresponsibility of the bankers who got us into this mess that they are in no mood to support yet more money to bail out banks. It is going to take an extraordinary act of political leadership to persuade the American public that unfortunately more money is necessary to solve this crisis.
The second area that keeps me up at night is Europe. During the real estate bubble years, the 13 countries of Eastern Europe that were once part of the Soviet empire had their own bubble. They now owe a gigantic $1.3 trillion dollars, much of which they won¡¯t be able to pay. The burden will have to fall on the tax payers of Western Europe, especially Germany and France.
In the U.S. we at least have the national cohesion and the political machinery to get New Yorkers and Midwesterners to pay for the mistakes of Californian and Floridian homeowners or to bail out a bank based in North Carolina. There is no such mechanism in Europe. It is going to require political leadership of the highest order from the leaders of Germany and France to persuade their thrifty and prudent taxpayers to bail out foolhardy Austrian banks or Hungarian homeowners.
The Great Depression was largely caused by a failure of intellectual will¡ªthe men in charge simply did not understand how the economy worked. The risk this time round is that a failure of political will leads us into an economic cataclysm.
From The Washington Post
The Washington Post's Book World/washingtonpost.com Reviewed by Frank Ahrens
From the 1870s to 1914, the world's developed nations basked in a shimmering age of commerce. The European powers were at peace. Goods flowed home from colonies. The newly reunited United States was growing into muscular adolescence. And all of the world's major economies rested on a seemingly solid base: the gold standard.
But it proved to be a system in a snow globe, easily shattered. World War I broke the idyll and unhooked country after country from dependence on gold. They resorted to printing money to fund the war, leading to massive inflation, unemployment, political instability and general suffering across the Continent.
It's no wonder, then, that after the signing of the armistice in 1918 the world's four most powerful bankers -- a fraternity described in newspapers of the time as "the world's most exclusive club" -- did everything they could to force nations back to the discipline of the gold standard.
It was a ruinous decision. as Liaquat Ahamed notes in Lords of Finance, all the gold mined in history up to 1914 "was barely enough to fill a modest two-story town house." There simply was not enough of it to fund a global conflict or to allow economic recovery afterward.
Ahamed's illuminating and enjoyable book focuses on the four men whose arrogance and obstinacy, he contends, caused the worst depression in modern times: Benjamin Strong Jr., the morphine-using, consumptive governor of the New York Federal Reserve; Montagu Norman, the spiritual seeker at the helm of the Bank of England; Emile Moreau, the xenophobic governor of the Banc de France; and Hjalmer Schacht, the president of Germany's Reichsbank, a Prussian by temperament, if not by birth, whose sensibilities led to a flirtation with the Nazis.
They were the most important central bankers in their respective nations when those four countries controlled most of the world's wealth and one -- England -- was its unrivaled lender. It was a time, almost unrecognizable to us, when the central banks that printed each nation's currency were privately owned, and regulation was unheard of. As a consequence, this handful of men -- who knew each other intimately enough that one was godfather to another's son -- could wield a coordinated, long-lasting and terrible impact on the global economy.
The gold standard's role in the worldwide depression of the 1930s has been probed before, notably in Barry J. Eichengreen's scholarly Golden Fetters (1992). But Ahamed -- a hedge fund adviser, a World Bank veteran and a supple writer -- personalizes the story, exploring how insular relationships led to bad choices. Strong and Norman, for instance, became friends and gained each other's trust through lengthy correspondence. Strong used his influence to secure a loan for England, then prodded Norman to put England back on the gold standard. Norman, in turn, persuaded Strong to push down U.S. interest rates, helping to create the stock bubble that eventually burst in October 1929. When Strong died in 1928, his replacement became Norman's thrall and fell in lock-step with the emphasis on gold, extending the economic agony.
Meanwhile, the unchecked concentration of power in one banker's hands was also roiling Germany. In 1924, Schacht went bizarrely off the farm and attacked his government, releasing public statements accusing the state of losing control of its finances and saying that Germany was too broke to pay additional war reparations. While Schacht partly spoke the truth, his freelancing undermined already shaky public confidence. Later, he sabotaged a loan his nation tried to secure in New York, nearly bringing down the government.
Ahamed damns the dead, placing blame at the feet of men largely lost to history. The risk in writing about forgotten men, however, is that they might not have been interesting enough to be remembered. Lords Of Finance unearths some gossipy details: Norman, for example, was a salad-bar spiritualist who tried a little of this, a little of that (including Theosophy and autosuggestion) and once told colleagues he could walk through walls. But quirky does not equal memorable. These four bankers are about as compelling to us as, say, Treasury Secretary Henry Paulson may be to readers a century from now. My guess is that readers in 2109 will instead remember Warren Buffett and Bill Gates, just as we still know J.P. Morgan and John D. Rockefeller.
Rather than splendid personalities, this book's real advantage is timeliness. Parallels to today's global financial collapse come with regularity throughout, sometimes causing spit-take laughs, sometimes shudders. Heading into the Paris Peace Conference of 1919, one pugnacious English banker proposed forcing Germany to pay reparations of $100 billion, eight times its pre-war gross domestic product. He said he came up with the figure "between a Saturday and a Monday" -- which sounds a lot like the three-page request for $700 billion Paulson whipped up one weekend in September and sprang on Congress.
Until last year, few believed anything would stop U.S. homes from going up in value 10 percent every year. That is, until the sub-prime mortgage crisis exploded. Likewise, in the prosperous and interdependent Europe of 100 years ago, war was considered unthinkable because it would destroy all. By 1917, an entire generation of young male university graduates was dead. And, frankly, the brainpower needed for forward-thinking was lacking. European bankers of the time carried a cavalier ignorance of economics, and that goes double for America's first Federal Reserve directors. The science of monetary policy was still in its infancy, and no one could have expected four dreary bankers to turn suddenly into brilliant, ahead-of-their-time economists.
That role should have fallen to John Maynard Keynes, one of the few heroes of Ahamed's book. Keynes called the gold standard a "barbarous relic" and clearly explained its limits; in 1925, he accused the British banking elite of "attacking the problems of the post-war world with unmodified pre-war views and ideas." But despite being a well-known Cambridge don, Keynes was an outsider, not a member of the world's most exclusive club, and those in power largely ignored his warnings.
Looking at the events of the 1920s and 1930s, one wonders: Could a modern confluence of catastrophes cause another global depression? No major power is likely to return to the gold standard, so that risk is off the table. But is there a comparable systemic problem today, something we refuse to see? Ahamed thinks we're plain lucky that recent financial crises -- in Mexico in 1994, Asia and Russia in 1997-98, the United States beginning in 2007 -- "have conveniently struck one by one, with decent intervals in between." After reading his bracing book, one can only hope that our economy is in the hands of decision makers who are more numerous, less powerful or much wiser than in the past.
Copyright 2009, The Washington Post. All Rights Reserved.
- posted on 04/01/2009
When March Went Mad: The Game That Transformed Basketball (Hardcover)
by Seth Davis
"There are no secrets anymore in sport. Good grief, the best eighth-grade basketball players in the country are ranked. With his careful telling of the romantic saga of Magic and Bird, Seth Davis reminds us what fun it used to be when we could still be surprised, when a whole sport could be turned upside down, right before our wondering eyes. It's a delight to relive all that with When March Went Mad."¡ªFrank Deford
¡°I can¡¯t remember a behind-the-scenes story I have enjoyed more. A transcendent moment in sports that is so fully captured by Seth Davis -- I feel as if I was right in the middle of it all! Thanks, Seth, for the insight as to how this magical game is still a standalone event even thirty years later.¡±¡ªJim Nantz
"There is a lot more to what is known as ¡®the Magic vs. Larry game¡¯ than meets the eye. In When March Went Mad, Seth Davis does a superb job of shining a spotlight on many of those long-forgotten details."¡ªJohn Feinstein
"Seth Davis¡¯s When March Went Mad evokes more than a special season. Through deft reporting, he takes you behind the scenes from Terre Haute, Indiana, to East Lansing, Michigan, and on to the famous championship round in Salt Lake City. Best of all, though, Davis captures Larry Bird and Earvin ¡®Magic¡¯ Johnson as the young basketball genuises they were, basketball¡¯s yin and yang, equal but opposing forces who would transform the game. This is a fine piece of work."¡ªMark Kriegel
"There are only a few perfect combinations in the world. Peanut butter on toast, scotch on ice, and Seth Davis on basketball."¡ªRick Reilly
The dramatic story of how two legendary players burst on the scene in an NCAA championship that gave birth to modern basketball
Thirty years ago, college basketball was not the sport we know today. Few games were televised nationally and the NCAA tournament had just expanded from thirty-two to forty teams. Into this world came two exceptional players: Earvin "Magic" Johnson and Larry Bird. Though they played each other only once, in the 1979 NCAA finals, that meeting launched an epic rivalry, transformed the NCAA tournament into the multibillion-dollar event it is today, and laid the groundwork for the resurgence of the NBA.
In When March Went Mad, Seth Davis recounts the dramatic story of the season leading up to that game, as Johnson¡¯s Michigan State Spartans and Bird¡¯s Indiana State Sycamores overcame long odds and great doubts that their unheralded teams could compete at the highest level. Davis also tells the stories of their remarkable coaches, Jud Heathcote and Bill Hodges¡ªwho were new to their schools but who set their own paths to build great teams¡ªand he shows how tensions over race and class heightened the drama of the competition. When Magic and Bird squared off in Salt Lake City on March 26, 1979, the world took notice¡ªto this day it remains the most watched basketball game in the history of television¡ªand the sport we now know was born.
- posted on 04/01/2009
The Spartacus War (Hardcover)
by Barry Strauss
From Publishers Weekly
No one presents the military history of the ancient world with greater insight and panache than Strauss (The Trojan War). His latest work tells the story of a slave from the Balkans, a gladiator who in 73 B.C. led an uprising of 700 gladiators that eventually attracted over 60,000 followers. Strauss depicts Spartacus as a charismatic politician, able to hold together a widely disparate coalition of Celts, Thracians, Germans and Italians. As a general, he was a master of maneuver and mobility, keeping the ponderous Romans consistently off balance. Strauss reconstructs the rebels' movements across southern Italy and their development into an army good enough to overcome Rome's legions in battle after battle. Not until Marcus Licinius Crassus was given command of Roman forces did Spartacus face an opponent who could match him. Spartacus forced a battle that resulted in complete defeat and his anonymous death. But the uprising he sparked left a permanent mark on the Roman psyche and made Spartacus himself a figure of myth as well as history, as Strauss shows at the end of this brisk, engrossing account. 8 pages of b&w illus., maps. (Mar. 17)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
The first-century BCE slave revolt against Rome was led by Spartacus, a Thracian-born gladiator who had previously served as a Roman auxiliary soldier. Spartacus and the struggle he led have served as the inspiration for movies, an opera, and several fictionalized accounts. He has also been adopted as a symbol of freedom by political movements of both the Left and Right. Yet the historical Spartacus remains a murky figure, while the details of the revolt remain subjects of historical dispute. Strauss, professor of history and classics at Cornell University, has made an admirable attempt to fill in some of the gaps in the historical record in a compelling but highly speculative effort. Strauss admits the lack of reliable primary sources has forced him to engage in some tricky conjectures regarding the character and motivation of Spartacus. Still, many of his assertions are credible, and his efforts to portray the political and social milieu of Italy during the late Republic are superbly done. Strauss sees Spartacus as a brave and charismatic leader who was limited by some personal shortcomings. --Jay Freeman
- posted on 04/01/2009
Family Secrets: The Case That Crippled the Chicago Mob (Hardcover)
by Jeff Coen
Painting a vivid picture of the scenes both inside and outside the courtroom and re-creating events from court transcripts, police records, interviews, and notes taken day after day as the story unfolded in court in 2007, this narrative accurately portrays cold-blooded¡ªand sometimes incompetent¡ªkillers and their crimes. In 1998 Frank Calabrese Jr. offered to wear a wire to help the FBI build a case against his father, Frank Sr., and his uncle Nick. A top Mob boss, a reputed consigliore, and other high-profile members of the Chicago Outfit were eventually accused in a total of 18 gangland killings, revealing organized crime's ruthless grip on the city throughout the 1960s, 1970s, and 1980s. After a series of other defendants pled guilty, those left to face off in court alongside Frank Sr. were James ¡°Little Jimmy¡± Marcello, the acting head of the Chicago mob; Joey ¡°the Clown¡± Lombardo, one of Chicago¡¯s most colorful mobsters; and Paul ¡°the Indian¡± Schiro. A former Chicago police officer who worked in evidence, Anthony "Twan" Doyle, rounded out the list. The riveting testimony and wide-angle view provide one of the best accounts on record of the inner workings of the Chicago syndicate and its control over the city's streets.
Even in Chicago, a city steeped in mob history and legend, the Family Secrets case was a true spectacle when it made it to court in 2007. A top mob boss, a reputed consigliere, and other high-profile members of the Chicago Outfit were accused in a total of eighteen gangland killings, revealing organized crime¡¯s ruthless grip on the city throughout the 1960s, 1970s, and 1980s. Painting a vivid picture of murder, courtroom drama, family loyalties and disloyalties, journalist Jeff Coen accurately portrays the Chicago Outfit¡¯s cold-blooded--and sometimes incompetent--killers and their crimes in the case that brought them down. In 1998 Frank Calabrese Jr. volunteered to wear a wire to gather evidence against his father, a vicious loan shark who strangled most of his victims with a rope before slitting their throats to ensure they were dead. Frank Jr. went after his uncle Nick as well, a calculating but sometimes bumbling hit man who would become one of the highest-ranking turncoats in mob history, admitting he helped strangle, stab, shoot, and bomb victims who got in the mob¡¯s way, and turning evidence against his brother Frank. The Chicago courtroom took on the look and feel of a movie set as Chicago¡¯s most colorful mobsters and their equally flamboyant attorneys paraded through and performed: James ¡°Jimmy Light¡± Marcello, the acting head of the Chicago mob; Joey ¡°the Clown¡± Lombardo, one of Chicago¡¯s most eccentric mobsters; Paul ¡°the Indian¡± Schiro; and a former Chicago police officer, Anthony ¡°Twan¡± Doyle, among others. Re-creating events from court transcripts, police records, interviews, and notes taken day after day as the story unfolded in court, Coen provides a riveting wide-angle view and one of the best accounts on record of the inner workings of the Chicago syndicate and its control over the city¡¯s streets.
About the Author
Jeff Coen is a reporter for the Chicago Tribune, covering federal trials and investigations from the Dirksen U.S. Courthouse in downtown Chicago. He was present in the courtroom throughout the Family Secrets trial, and his pieces on the case were featured in a popular series in the Chicago Tribune.
(c) 2010 Maya Chilam Foundation